Nomura upgrades Tata Motors to 'Buy', sees 26% upside; check new target

Nomura on Tata Motors: Japanese brokerage Nomura has upgraded automaker Tata Motors to ‘Buy’ from ‘Neutral’, with an increased target price of Rs 1,294, from Rs 1,141 earlier, marking an upside of 25.6 per cent.

On the bourses, Tata Motors stocks were buzzing in trade after several brokerages raised the target prices. The stock rallied as much as 3.82 per cent to hit a fresh record high of Rs 1,067 per share. 

That said, research analysts Kapil Singh and Siddhartha Bera of Nomura said, “We raise our target multiple for commercial vehicles (CVs) to 11x enterprise value/earnings before interest taxes, depreciation and amortisation (EV/Ebitda), from 10x. Demerger may lead to better value discovery, in our view. We maintain PV valuation at 1.5x EV/sales on average FY26-27F sales and investments at Rs 144 per share. The stock is currently trading at 5.4x FY26F EV-Ebitda. TTMT’s net debt of Rs 16,000 crore (approximately Rs 44 per  share) in FY24 may move to net cash of Rs 57/Rs 140 per share by FY26/27F.”

 

What else led analysts to up the ratings, target price?

JLR transitioning to luxury

Analysts noted, the transition from premium to luxury will help Jaguar Land Rover (JLR) stay one level above the high competition segments. Furthermore, the strategy is working well, analysts reckon, as incentives for Land Rover have been well under control despite an increasing trend across the rest of the OEMs.

While volume growth may be low (Nomura estimate volumes of 402/405/435k over FY25- 27F), analysts believe earnings growth can be stronger due to a rise in average selling prices (ASPs) and margins.

“We estimate JLR’s ASP to rise from ~GBP 72,000 in FY24 to GBP 77,000 by FY27F. Earnings before interest, taxes (Ebit) margins can rise 8.5 per cent in FY25F (7.8 per cent earlier) to 10.1 per cent by FY27F with further potential to rise to ~11-12 per cent by FY30F,” Nomura said in a note. 

This, analysts believe, should be supported by the run-down of Jaguar ICE, success of new Jaguar EVs (JEA platform) and more premium Range Rover variants. 

MHCV demand remain robust

Demand for medium and heavy commercial vehicles (MHCV) in India is expected to remain strong, with analysts projecting a 5 per cent volume compound annual growth rate (CAGR) from FY25 to FY27. They also anticipate that Ebitda margins will sustain around 11.5 per cent, supported by robust demand indicators.

PV, EV demand stabilises

Analysts noted a downturn in demand within the passenger vehicle (PV) and electric vehicle (EV) sectors. Despite this, upcoming launches such as Curvv (on August 7) and the Harrier EV in FY25 are expected to bolster overall volumes. 

“We factor in stable market share at 14 per cent (guidance of 18-20 per cent by FY30F). We slightly lower volume growth to 6 per cent/5 per cent/5 per cent per cent over FY25F-27F and EBITDA margins to 7.3 per cent-8 per cent,” research analysts Kapil Singh and Siddhartha Bera at Nomura said.

Q1FY25F expectations

Analysts anticipate Tata Motors' revenue for Q1FY25F to come in at Rs 1.09 lakh crore, marking a 7 per cent year-on-year increase. The Ebitda margin is expected to be around 13.8 per cent, reflecting a slight 40 basis points decline quarter-on-quarter due to seasonal factors.

For JLR, revenue is projected to be GBP 7.3 billion, showing a 6 per cent year-on-year growth. The Ebitda margin for JLR is anticipated to marginally decrease to 16.1 per cent, down by 25 basis points quarter-on-quarter.

Downside risks

Key downside risks, analysts believe, include a sharp decline in demand in China and the EU, as well as increasing incentives affecting performance.